Opinion
No. 04105–2012.
2013-02-13
Cardinal Health 414 LLC f/k/a Cardinal Health 414, Inc., Plaintiff, v. U.S. HEARTCARE MANAGEMENT, INC., d/b/a or a/k/a Sonix Heartcare Management, Inc., Nuclear Cardiac and Medical Imaging Services, P.C., Medical Diagnostic Management Services, Om P. Soni and Kunal Soni, Individually, Defendants.
Magnozzi & Kyle, LLP, Cynthia Butera, Esq., Huntington, Attorney for Plaintiff. Marc S. Bresky, Esq., The Bresky Law Firm, PLLC, Elmhurst, Attorney for Defendants Med. Diagnostic Mgt., Om Soni and Kunal Soni.
Magnozzi & Kyle, LLP, Cynthia Butera, Esq., Huntington, Attorney for Plaintiff. Marc S. Bresky, Esq., The Bresky Law Firm, PLLC, Elmhurst, Attorney for Defendants Med. Diagnostic Mgt., Om Soni and Kunal Soni.
EMILY PINES, J.
The Petitioner commenced this proceeding pursuant to CPLR §§ 5225 and 5227, based upon its claim, inter alia, that the Judgment it obtained from this Court, (under Index No.23152–09), entered on February 8, 2011 against U.S. Heartcare Management, Inc d/b/a or a/k/a Sonix Heartcare, Management, Inc (“Heartcare”), in the amount of $1,189,866.36, has been rendered uncollectible by virtue of the fraudulent transfer of Heartcare's assets and operations to an entity, Medical Diagnostic Management Services (“MDMS”), allegedly owned and operated by the same persons who owned and operated the judgment debtor. Those individuals are the individual Respondents, Om P. Soni and Kunal Soni, Om Soni's son. The remaining Respondent, Nuclear Cardiac and Medical Imaging Services, P.C. (“Nuclear”) is allegedly a professional corporation that provides medical services at nuclear cardiac facilities, for which Heartcare (the judgment debtor) and MDMS provide management and billing services, through which the judgment debtor and its alleged alter ego MDMS earn revenue and generate billing for patient fees. Cardinal Health 414 LLC (“Cardinal”) has now moved, by Order to Show Cause (motion sequence # 001) for relief, including a turnover to Petitioner of all sums and property due Heartcare and/or MDMS, its alleged alter-ego, and awarding a money judgment against MDMS and Nuclear for the amount of Cardinal's judgment issued by this Court on February 11, 2011. In addition, Cardinal seeks an Order of Attachment against Heartcare, MDMS and Nuclear's assets up to the sum of the aforesaid judgment. In connection with the requested Order of Attachment, Petitioner asks this Court to direct the Sheriff of this County to levy on all property in which the Respondents have an interest and upon all debts owing to such Respondents to the extent of the $1,189,866.35, representing Petitioner's judgment against Heartcare.
Petitioner also seeks to hold Respondents Heartcare, Om Soni and Kunal Soni in contempt for failing to provide discovery pursuant to subpoenas served upon them in accordance with, inter alia, Article 52 of the CPLR.
The gravamen of the Petitioner's motion concerns the relationship among the various entities and their alleged officers/owners. According to Petitioner, Nuclear performs medical cardiac diagnostic services at various facilities that generate patient billing. While Nuclear is physician owned, its business address is identical to that of Heartcare, the judgment debtor. It is asserted that supplies purchased from Cardinal, for which Heartcare never paid, and were the subject of the 2009 action, were used by Nuclear to perform cardiac stress tests, which resulted in patient billing and revenues generated to Nuclear and, in turn, Heartcare, which maintained bank accounts through which Nuclear functioned. Fees for Heartcare's management services would be remitted to Heartcare through these Nuclear bank accounts, managed and controlled by Heartcare. Petitioner states further that once it obtained Summary Judgment, for goods sold and delivered in the 2009 action, against Heartcare, but before Cardinal entered Judgment, Heartcare, through its owners and officers, Om Soni and Kunal Soni, created a new entity, MDMS, for the express purpose of taking over the business and operations of Heartcare, and that this was done without any sale or consideration, specifically to avoid payment to Heartcare's creditors. It is asserted by Petitioner that MDMS has since performed the very functions Heartcare performed for Nuclear. It is the Petitioner's contention that this unlawful transfer of assets has rendered the judgment debtor, Heartcare, insolvent.
Respondents MDMS, Om Soni and Kunal Soni, oppose the relief sought on various grounds. Their counsel argues that there exists no basis for the relief sought under CPLR Article 52, which is limited to ordering the turn over of money or property and/or payment of debts owed to a judgment creditor; thus, it is asserted that Petitioner lacks authority in the context of a special proceeding to obtain what is essentially declaratory relief that the Respondent MDMS is the alter-ego of Heartcare. For the same reasons, Respondents' counsel asserts that the relief requested in the form of an Order of Attachment and temporary injunctive relief, is only permitted when it is sought as part and parcel of an action, and not a special proceeding as this claim has been fashioned. In addition, with regard to the merits of the relief requested, Om Soni and Kunal Soni set forth that they never transferred any Heartcare assets to MDMS; that MDMS never took over the business operations of Heartcare; that neither MDMS, Om Soni nor Kunal Soni have assigned, encumbered or secreted or removed property from this State in an effort to avoid the Judgment against Heartcare; that neither MDMS, Kunal Soni nor Om Soni are in possession of any property or money in which Heartcare has any interest; that neither MDMS nor Kunal Soni has any legal relationship to Heartcare; that neither MDMS, Kunal Soni nor Om Soni are in possession of any property, money or personal property in which Heartcare has an interest; and that Om Soni has never been the director, employee or shareholder of any of the corporate Respondents. Neither Respondent Heartcare nor Nuclear has submitted papers in opposition to Petitioner's motion.
In papers submitted over several months, including the original motion and opposition, reply affidavits, sur reply affidavits and sur-sur reply affidavits, all of which this Court has read, the arguments other than those set forth above, are as follows. Respondents claim that although MDMS was named as the alter-ego of Heartcare in a landlord-tenant action, the attorney representing the corporation therein was not familiar with the corporate structure and the other court's determination involved different issues and is not binding herein. In an action between a commercial sublessor and Heartcare, the Plaintiff therein sought a pre-judgment Order of Attachment against the assets of Heartcare, which was in default on its sublease as well as against the assets of MDMS, solely on the ground that MDMS was the alter ego of Heartcare, the allegations that MDMS had the same office address and telephone number as Heartcare, that MDMS served the role previously played by Heartcare, its creator, and that MDMS had no function whatsoever other than to perform the work of Heartcare. It was the sublessor's contention in that action that Heartcare's extrication of itself from the receipt of Nuclear's funds, through the creation of a third party, MDMS, to which Nuclear paid funds, was performed to defraud the Plaintiff in that action and frustrate its ability to enforce a judgment to which it may be entitled. In that action, entitled Metropolitan Diagnostic Imaging Group LLC v. U.S. Heartcare Management, Inc, Index # 06449–10, Justice Warshawsky ruled as follows: “The Court concludes that MDMS is the alter ego of U.S. Heartcare, with same office address and phone number, and serving the role previously played by Heartcare, its creator”. Petitioner, in this action, asserts that MDMS is, therefore, barred by the doctrine of collateral estoppel, from re-litigating an issue which was determined in a contested action.
In addition, Petitioner provides the affidavit of James Frazzetta, the corporate Controller and Treasurer for Sonix Heartcare Management, Inc, which acquired the assets of Heartcare in 1999. Mr Frazzetta's affidavit sets forth that MDMS was formed to take over the operations of Heartcare as it relates to the management of Nuclear's practice and for the purpose of avoiding the enforcement of judgments by Heartcare's creditors. Specifically, Frazzetta sets forth, inter alia, that: 1) Kunal Soni was put in charge of Heartcare's operations prior to the formation of MDMS; 2) MDMS was formed for the purpose of taking over management services for Nuclear and was the successor corporation to Heartcare, which found itself unable to pay judgments against it; and 3) Om Soni was aware that MDMS was taking over the operation of Heartcare.
The response to the Frazzetta affidavit is that he is a disgruntled former employee, who embezzled funds from Om Soni's personal accounts and/or one or more of his related entities in 2007 or 2008. Yet, no action has ever been filed by any of these entities or persons and he remained an employee of Heartcare through 2010.
Petitioner also points the Court to Om Soni's deposition in this case in which he admits that he was the owner of Heartcare, which was included within the umbrella of the Sonix entities; and that he consented to the abandonment of Heartcare's operations. He also admitted that he was a signatory on Heartcare's bank accounts. With regard to Om Soni's assertion that he has no relation to MDMS, Petitioner points to Kunal Soni's admission the Om Soni signs checks on behalf of MDMS' account. With regard to Kunal Soni's assertion that he had no relation to Respondent Heartcare, Petitioner points to affidavits both in another landlord tenant action in Queens and in the 2009 action before this Court, where Kunal Soni signs his name as Vice–President of Heartcare. Based upon bank records produced in discovery, Petitioner points to Kunal Soni as “Vice–President–Marketing” on Heartcare's payroll register and Heartcare payment of Kunal Soni at least one month before the incorporation of MDMS.
Article 52; Article 62
CPLR §§ 5225(b) and 5227 provide a judgment creditor with a mechanism to collect on its judgment through the commencement of a special proceeding. While CPLR 5225 applies in those cases where the creditor is seeking money or property, CPLR 5227 is utilized in those cases where the funds sought constitute a debt owed the judgment debtor. Since the distinction is often difficult to discern, Professor Siegel sets forth that attorneys utilize both together. (Siegel, N.Y Practice, § 510 (5th ed). CPLR 5225(b) and 5227 require that a special proceeding rather than a mere motion under the index number giving rise to the former judgment be utilized, where the property or debt sought to be turned over is held by a third person. This special proceeding can be asserted both against a garnishee legitimately holding property or money of the judgment debtor but also against a transferee of the judgment debtor. The mechanism allows the judgment creditor to set aside the transfer of the debtor's assets to a new entity where the transfer is shown to be fraudulently accomplished to avoid payment to creditors. Although originally a creditor was required to commence a plenary action to achieve this goal, now it can be accomplished through a special proceeding under CPLR 5225 or 5227. See, Siemens & Haskle GmbH v. Gres, 32 A.D.2d 624, 299 N.Y.S.2d 908 (1st Dep't 1964). Thus, CPLR 5225(b) authorizes the commencement of a special proceeding against a transferee of property from a judgment debtor, where the judgment creditor's rights to the property are demonstrated to be superior to those of the transferee. Oil City Petroleum Co v. Fabac Realty Corp, 50 N.Y.2d 852, 430 N.Y.S.2d 38, 407 NE 2d 1334 (1980); Gelbard v. Esses, 96 A.D.2d 573, 465 N.Y.S.2d 264 (2d Dep't 1983).
In proceedings brought pursuant to CPLR 5225(b), if a creditor seeks payment from a transferee of a judgment debtor, the creditor is required to demonstrate, under the relevant provisions of the Debtor and Creditor Law, that the debtor's conveyance was fraudulent and made without fair consideration. Siemens, supra. Where CPLR 5227 is utilized against a respondent that will but does not yet owe money to the judgment creditor, that respondent may be required to make some sort of commitment to pay such debt to the judgment creditor rather than to the judgment debtor, when it comes due. Siegel, supra.
Although they often accomplish the same goal, prejudgment attachment under CPLR Article 62 is utilized only against property and permits seizure of a debtor's property to be held by the sheriff, for the purpose of being applied to a creditor's judgment should the creditor ultimately prevail in its action. Koehler v. Bank of Bermuda Ltd, 12 NY3d 533, 883 N.Y.S.2d 763, 911 NE 2d 825 (2009). Article 52, on the other hand, authorizes the commencement of a special proceeding against a transferee or garnishee of the debtor's assets. A successful Petitioner under Article 52 gains the right to a delivery or turnover order, requiring the garnishee or transferee of the debtor's property to deliver such property to the judgment creditor or to convert such property to money for the payment of a debt. As set forth by the Court of Appeals, the reason Article 52 permits the creditor to proceed against a garnishee, rather than the attachment device under Article 62, is a recognition of the possibility that the garnishee may assert its own interests in the property. Id.
Piercing the Corporate Veil
In order to pierce the corporate veil, the proponent must demonstrate that: 1) the owners exercised complete dominion over the corporation in respect to the transaction attacked; and 2) that such domination was used to commit a fraud or wrong against the claimant which resulted in the petitioner's injury. Matter of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 603 N.Y.S.2d 807, 623 NE 2d 1157 (1993). Even absent fraud, the corporate veil will be pierced to achieve equity, “[w]hen the corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator's business instead of its own and can be called the other's alter-ego”, Matter of Island Seafood co. v. Golub Corp., 303 A.D.2d 892, 759 N.Y.S.2d 768 (3d Dep't 2003) quoting Austin Powder Co. v. McCullough, 216 A.D.2d 825, 628 N.Y.S.2d 825 (3d Dep't 1995).
“The doctrine of collateral estoppel bars relitigating an issue which has necessarily been decided in a prior action and is determinative of the issues in the present action, provided that there was a full and fair opportunity to contest the decision now alleged to be controlling” (Capellupo v. Nassau Health Care Corp., 97 AD3d 619, 948 N.Y.S.2d 362 (2d Dep't 2012). “The party seeking the benefit of collateral estoppel bears the burden of proving that the identical issue was necessarily decided in the prior proceeding, and is decisive of the present action” (City of New York v. College Pont Sports Assn, Inc., 61 AD3d 33, 876 N.Y.S.2d 409 (2d Dep't 2006).
Applying the law to the facts set forth the Court finds as follows. Petitioner has commenced the proper form of special proceeding to protect its rights as a judgment creditor of Heartcare, which all parties herein admit, is without assets. As a judgment creditor, Cardinal has the right to seek a judgment against a transferee of Heartcare's assets, to the extent that the transfer was accomplished without consideration and for the purpose of avoiding the claims of creditors. While the Court agrees with Respondents' counsel that an Article 62 attachment of the Respondents' assets is inappropriate here, a turnover order, one of the forms of relief sought by Petitioner, is authorized. In this case, there is no question that Cardinal is entitled to a judgment against MDMS, as a transferee of all the assets of Heartcare for no consideration whatsoever, for the full sum it obtained before this Court in 2011 against Heartcare. MDMS is collaterally estopped from arguing that it is somehow a separate entity from Heartcare based upon Justice Warshawsky's determination described above. In that action, a creditor of Heartcare sought to attach the assets of MDMS in order to assure that a judgment it sought against Heartcare would not be rendered a nullity. MDMS and Heartcare opposed the relief sought in that action, and the court determined, based upon the papers submitted, that MDMS was created to carry on the business of Heartcare, to avoid the creditors of Heartcare, and that MDMS was the alter ego of Heartcare, rendering MDMS' assets subject to the creditor's rights.
It is irrelevant that this is a special proceeding and that the other matter was an action to collect rent. In both cases, the issue before the court, which was fully litigated, was whether MDMS was the same entity as Heartcare vis-s-vis creditors. It was and is. Interestingly, because Kunal and Om Soni both insist in their affidavits in opposition to the relief sought in this special proceeding that Heartcare and MDMS are totally separate entities, they essentially admit the Petitioner's claim that no consideration whatsoever was paid for the transfer of Heartcare's assets to MDMS. Therefore, Cardinal is entitled to two prongs of the relief sought in its motion; to wit, judgment against MDMS for the full amount of the judgment obtained on February 11, 2011, from Heartcare and a judgment ordering the turnover of all assets of MDMS, to the amount of its judgment.
With regard to Nuclear, that entity has not opposed the Petitioner's motion, and, based upon the law as set forth above, Cardinal has proved its entitlement under CPLR Art. 52 to a judgment ordering the turnover by Nuclear to Cardinal of any and all debts Nuclear owes to MDMS as of the date of the entry of judgment in this case. Nuclear has made no claim, in response to the motion before the Court, that it asserts any rights to the funds due and payable to MDMS. The Petitioner is also entitled to submit a separate judgment against Nuclear for all monies to become due and owing to MDMS in the future, execution of that separate judgment to be stayed until the funds are actually due MDMS.
To the extent that Petitioner seeks turnover relief against the individual Respondents, Om Soni and Kunal Soni, such are denied at this time, as more facts must be demonstrated before the Court can make a finding that Petitioner is entitled to their personal assets through the doctrines of piercing the corporate veil and/or improper transfers in violation of the Debtor and Creditor Law. As set forth in Petitioner's motion papers, it is entitled under CPLR Article 4, to full disclosure of those individual Respondents' assets. The Court is not inclined to hold Heartcare, MDMS, Om Soni or Kunal Soni in contempt, under Article 52 and Judiciary Law § 753 for the alleged failure to comply with disclosure, as the record reflects that the individuals have appeared for depositions and have turned over certain financial records. However, for the reasons set forth, Petitioner is clearly entitled to their personal financial records and those sought by Petitioner shall be provided within two weeks of this Court's Order.
This constitutes the DECISION and ORDER of the Court. Submit Judgment providing for: 1) judgment in the amount of $1,189,866.36 in favor of Cardinal against MDMS; 2)the turnover of all assets of MDMS up to the amount set forth above; and 3) the turnover of all debts owed by Nuclear to MDMS until the full judgment is satisfied. As set forth, a separate judgment may be submitted by Cardinal against Nuclear for all amounts to become due and owing in the future by Nuclear to MDMS, such to be stayed until such debts become due and owing. Pending the payment to Petitioner of the full sum set forth above, MDMS, its agents, officers, directors, shareholders and employees is hereby restrained and enjoined from transferring or disposing of any of its assets, which this Court has found to be the assets of the former judgment debtor, Heartcare.